(Bloomberg) -- Northern Star Resources Ltd. will buy De Grey Mining Ltd. in a takeover valued at about A$5 billion ($3.3 billion), as gold producers seek to secure more supply amid soaring prices for the precious metal.
The Australian gold producer will acquire all shares in the smaller miner, in a deal representing a 37% premium to De Grey’s closing price on Friday. The takeover hands Perth-based Northern Star full ownership of the Hemi project, a tier-one, low-cost asset in the Pilbara region of Western Australia.
Increasing ore supply is key for Northern Star, Australia’s largest listed gold miner. The company committed A$1.5 billion last year to more than double processing capacity at its Kalgoorlie operations, and said in March that it was seeking to extend the life of its flagship Fimiston gold mine — or Super Pit — to 2034.
De Grey’s shares jumped as much as 30% in early Sydney trading, while Northern Star fell as much as 6.5%.
Hemi is set to produce 530,000 ounces per annum on average in the first 10 years of production — making it one of Australian’s top five gold mines. The project is still subject to a final investment decision, pending government environmental approvals. First production could come by mid-2026, Northern Star said in the statement.
Northern Star in recent months expressed the need to maintain discipline when it comes to viewing deal-making opportunities, and emphasized its focus on expanding its existing projects.
“The greatest returns right now are in our organic delivery, and we can consistently deliver into that,” Chief Executive Officer Stuart Tonkin said during an October sales call with investors. “The view and appetite is to always look. We don’t need things, and we’ve got a great organic delivery and plan and strategy.”
The deal, which has been unanimously recommended by De Grey’s board, will see its shareholders issued 0.119 new Northern Star shares — valued at A$2.08 based on Friday’s closing price. Northern Star shareholders are set to own 80.1% of the combined group, with De Grey stockholders having the balance.
“Northern Star’s assets are all aging, becoming more capital-intensive and facing declining grades,” Citigroup Inc. analyst Kate McCutcheon said in a note Monday. “While the timing may come as a surprise to the market given recent comments around M&A, and also record gold prices, we think in the fullness of time, Northern Star can demonstrate its exploration pedigree to unlock value.”
There has been a flurry of M&A activity in recent months, including Gold Fields Ltd.’s $1.6 billion purchase of Osisko Mining Inc. and AngloGold Ashanti Ltd.’s $2.5 billion acquisition of Centamin Plc. That’s sparked speculation over what could be next, with signs that more companies are working to ink deals.
Gold has surged about 30% so far in 2024, supported by the US Federal Reserve’s monetary easing cycle, central-bank purchases and heightened geopolitical and economic risks. Some analysts expect fresh records in 2025, with Goldman Sachs Group Inc. and UBS Group AG both issuing bullish outlooks last month.
Australia is the world’s third-largest producer after China and Russia, according to the World Gold Council.
(Updates with share prices in fourth paragraph, analyst comments in ninth)
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